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Today’s historic Supreme Court Case ruling has many immediate effects for same sex couples. Some of these effects include their personal finance decisions. Legal and financial experts are already speaking out about some of those changes in an effort to answer some of the questions, including credit card debt, bank accounts, federal income taxes, estate plans and other similar quagmires straight couples have dealt with over the years. Personal finance and same sex marriages are about to merge in ways never before seen.

DOMA

You may recall the federal Defense of Marriage Act, which was passed in 1996, restricted federal marriage benefits for income tax and other purposes for same sex couples. Further, it required states to recognize marriage contracts from other states only if they involve opposite sex couples. The SCOTUS was tasked with determining whether the government has to recognize a marriage validly performed in any state or jurisdiction.

An estate tax applies to estates larger than $5.25 million. Under current law, surviving spouses in federally recognized marriages are forgiven any taxes. When it comes to states that don’t recognize these marriages, the inheritance most often go to the deceased’s biological family and not the surviving spouse.

By overturning DOMA, these couples can rest easier knowing their worst case scenarios have been dealt with in one fell swoop, or in this case, one fast Supreme Court ruling.

Personal Finance and Same Sex Marriages

The lawsuit filed with the Supreme Court, U.S. v Windsor, was initially filed as a tax suit and really, it had little to do with the rights of same sex couples when it comes to marriage, but rather, the laws on a state level. The initial suit was filed by Edith Windsor, a resident of New York. When same sex marriages were recognized in New York, Windsor married Thea Spyer, her partner of 40 years. Unfortunately, when Spyer died, her estate was forced to pay more than $360,000 in estate taxes because the federal government didn’t recognize the marriage. This was when she filed the lawsuit.

Tax Returns

If the Supreme Court decides it is unconstitutional to ban same-sex marriage, those same married same-sex couples will really need to review their federal tax returns for the last three years to see if they want – or need – to refile as married couples. Before today, because the federal laws didn’t acknowledge same-sex marriages, couples had to file as married on the state level and as single on the federal level.

Couples will not be required to refile tax returns, so they should talk to an advisor to see if it makes sense for them,

If couples are not married, they will want to see if it is advisable for them to get married.

Kid Factor

At least one of the Justices brought the kid factor into the process. Justice Kennedy insists it was DOMA that” injured children, and not only financially” when it denied their families certain insurance benefits.

It humiliates tens of thousands of children now being raised by same-sex couples,

he found, making it

even more difficult for the children to understand the integrity and closeness of their own family and its concord with other families in their community and in their daily lives.

Perhaps most disturbing was Justice Scalia’s reaction. He continues to insist the Constitution

doesn’t forbid the government to enforce traditional moral and sexual norms,

he wrote. Had the ruling been different, personal finance and same sex marriages would remain a murky pool of uncertainty; however, Scalia’s comments that government has the power to enforce traditions, morals and sexual norms is disturbing on many levels.

California Prop 8

This rule could have affected Proposition 8, which was passed in California and stated that only marriage between a man and a woman is valid in California. In that case, the court could have decided whether it is unconstitutional for the left coast state to prohibit same-sex couples from marrying. In striking down DOMA, Justice Anthony Kennedy said Congress had no business undermining a state’s decision to extend “the recognition, dignity and protection” of marriage to same-sex couples. In other words, the court opted to stick just to federal laws and left state law to the states. Justice Kennedy also said,

By excluding such couples from the rights and responsibilities of marriage contained in more than 1,000 provisions of federal law, DOMA writes inequality into the entire United States Code.

Because the ruling was met with immediate effects, the Obama administration said it too would “move swiftly to ensure same-sex married couples get the same tax and other benefits as heterosexual couples”.

However, the process on just how this could be accomplished could be a bit more challenging than anyone thinks. For instance, same sex marriages aren’t legal in some states; what does that mean for credit card accounts or bank accounts? What about qualifying for a mortgage? If a same sex couple resides in one of the 38 states that doesn’t recognize their marriage, the Supreme Court ruling doesn’t mean that their home state must now acknowledge it. In fact, couples may not even have access to federal benefits.

The Role of Republicans

Some groups, including labor unions, are pledging more than $10 million for Republicans to get their states on the same page. It doesn’t sound ethical and what these groups may not realize is that there are those who would budge for no amount of money. States like Mississippi and Alabama will be incredibly difficult. In fact, Mississippi is so conservative that it tried to pass Prop 13 a few years ago. This law would have taken away a woman’s access to birth control. The reasoning was that the pill actually aborts fetuses. Indeed, Mississippi and its conservative population could be the biggest challenge of all.

As mentioned earlier, estates are not taxed until both spouses die, but for the same-sex couple, they are taxed when one spouse dies. Now that the decision has come down, same sex couples will want to amend their estate plans to take advantage of this change.

Of course, this affects employers around the country, but most believe the ruling will actually simplify their payroll efforts, benefits and insuranceconsiderations. Employee benefits paid to same sex spouses were being taxed as income because the federal government didn’t acknowledge the marriage; however, for heterosexual couples, the benefits for the spouse are not taxed and can be paid for with pretax dollars.

The current system meant there were often two sets of procedures for those employers who provide benefits to same sex couples.

So, does this mean same sex couples will be able to reclaim financial assets that were lost when DOMA was put into place? David Flowers, who is a Berkeley financial advisor, explains it this way,

Today, if LGBT married couples own property together, the surviving spouse could be left with a large inheritance tax or be subject to lawsuits from family members challenging will or trust provisions intended to leave assets to the survivor. Some of these legal arrangements will need to be to take advantage of the default protections that marriage offers.

That said, many treated these types of assets as “irrevocable gifts”.

Because of that, same sex couples could now end up paying more in estate taxes.

What are your thoughts on today’s rulings? Do you think same sex couples should be afforded protections under state and/or federal laws? And what about those extremely conservative states: will they turn the page as well and begin to follow suit?